CARES Act allows new 401(k) distributions and loans

New coronavirus law allows new 401(k) distributions and loans

Included in the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law on March 27, 2020, are provisions designed to provide relief to certain participants in 401(k) retirement plans who have been impacted by the coronavirus pandemic.  In a business Q&A with The Oklahoman, employee benefits attorney Brandon Long reviews who qualifies for this relief, which includes tax-advantaged distributions and increased loan amounts.

“The CARES Act allows certain 401(k) plan participants to take a coronavirus-related distribution from their retirement plan account up to $100,000,” said Long.  “These distributions have significant tax advantages that do not currently exist including: the normal 20% federal income tax withholding can be ignored; these distributions are exempt from the 10% early withdrawal penalty (that typically applies if a participant is under 59-1/2); the distribution can be repaid to the plan within three years; and the individual can recognize personal income for the related taxes over a three-year period that begins when they take the distribution (as opposed to having all of the amount included immediately in their income).

The CARES Act also allows 401(k) participants to delay required minimum distribution payments in 2020, said Long.